Italian manufacturers posted the strongest improvement in operating conditions since mid-2007 during the final month of Q1 2010. The overall improvement was driven by rising production and new order levels, while growing supply-chain pressures also pointed towards higher demand for manufacturing inputs. Nevertheless, the overall pace of improvement remained modest as jobs continued to be shed across the sector.
The overall improvement in business conditions was signalled by the seasonally adjusted Markit/ADACI Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of manufacturing performance – posting 53.7, up from 51.6 in February. This marked the fifth month in succession in which overall operating conditions have strengthened, and was the strongest monthly improvement since June 2007.
Output levels at Italian manufacturing plants rose for the sixth straight month during March, and at the sharpest pace since June 2007. By sector, however, results were mixed, as sharp rises in investment and intermediate goods production offset a slight decline in consumer goods output.
The rise in output was largely linked by panelists to another sharp increase in incoming business levels. Although the pace of new order growth was below January’s 32-month peak, it was the sixth rise in as many months. Manufacturers widely linked higher new orders to improving economic conditions.
Firms also reported that improving economic performance in key export markets acted to boost demand from abroad. New export orders rose for the fifth straight month in March, albeit at a marginally weaker rate than seen for new business as a whole.
Despite the continued rises in production and new orders, Italian manufacturers reported a further reduction in staffing levels across the sector during March. Nevertheless, the pace of staff shedding moderated to the slowest since September 2008. In a number of cases, outgoing staff had not been replaced in an attempt to boost cash flow.
Latest data signaled the sharpest rise in average input costs since July 2008, as higher raw material costs intensified inflationary pressures. There was also evidence from the survey that increasing supply chain pressures played a part in raising average input costs. This was signposted by the sharpest deterioration of vendor performance in 44 months, as suppliers struggled to meet manufacturers’ demand for inputs – which rose for the fourth straight month.
The need to pass on higher input costs to clients in the form of increased charges led to the first rise in output prices since September 2008.
Commenting on the Italy Manufacturing PMI survey data, Andrew Self, economist at Markit, said: “The Italian manufacturing sector rounded off the first quarter of 2010 in solid shape, with higher output and new orders leading to the most marked improvement in overall conditions since June of 2007. Despite continued signs of weakness in the consumer goods sector, on average manufacturers were able to raise changes for the first time since September 2008, although sharp rises in input costs may have forced their hands, as they fight to protect margins. Although the headline PMI points to ongoing improvement and came in above a Reuters poll of forecasters, compared with last week’s Eurozone flash release, the Italian manufacturing recovery continues to lag behind that seen for the currency bloc overall.”